[Editorial] No Haste for Comprehensive Real Estate Taxation

The government and the ruling Uri Party have agreed to introduce a new comprehensive real estate taxation scheme. They said they will finalize the scheme at a meeting between the government and party officials this week and propose a bill to the National Assembly. They also plan to introduce a bill to reduce taxes on real estate transactions and registrations. All theses are correct measures since cuts in transaction taxes are one of the government’s pledges with the public and since property-ownership taxes have risen drastically. However, it is still problematic that the government is attempting to introduce the new comprehensive taxation scheme hurriedly.

What is most worrisome is the resistance to taxes. The government said it would calculate the comprehensive tax based on the current property and comprehensive land taxes. Houses which are traded above market value will face a jump in taxes, causing taxpayer resistance. If a new comprehensive tax is levied on top of that, it will further elevate the resistance.

We are doubtful whether the government has a sufficient level of taxation infrastructure in place for the new scheme. Even the National Tax Service (NTS) remains skeptical about it. A waste of administrative resources, coupled with errors in electric tax data, may cause over-taxation, which in turn will increase taxpayer resistance and public complaints while hurting the credibility of the NTS. It will likely wind up troubling other sectors of the NTS.

As the comprehensive tax is a national, not local, tax, it is against the localization of government, one of polices the Roh Moo-hyun government has been stressing. It is the principle that local governments should collect property ownership taxes. If the central government collects and reallocates them, it will weaken local autonomy. This was why the National Association of City and County Mayors expressed its opposition to the scheme.

The jittery in the housing market should be also considered. As of August, transactions in the housing market fell by 29 percent on the year. Permits for new houses fell by 43 percent. Increases in rent deposits leave many tenants to look for new cheaper houses. Speculation on real estate should be expurgated. However, normal real estate transactions should not be disrupted. The government and the ruling party should be more articulate about the problems involving the new schemes and reconsider them sufficiently.